The Annapolis housing authority is preparing for a potentially significant reduction in funding for redevelopment projects because of the federal tax bill.

The Housing Authority of the City of Annapolis could face challenges in its plan to redevelop the Newtowne 20 and Morris H. Blum properties, as the federal tax bill passed by Congress this week would lower the corporate tax rate. The lower rate would make buyers less likely to want or need low-income housing tax credits, which many low-income housing developers rely upon.

The bill is headed for President Donald Trump’s desk sometime in the next week. Trump has promised to sign it into law.

“With the corporate tax rate dropping almost in half, the value of incentives that happen through the tax base or the tax code will drop that much,” said Eileen Neely, acting chief financial officer of HACA. “I’m really concerned.”

With federal funding for public housing on the decline, the housing authority is one of many developers transitioning to a section 8, project-based system under the U.S. Housing and Urban Development Department’s rental assistance demonstration, or RAD, program. RAD would allow the housing authority to seek a private partner and finance redevelopment partially through low-income housing tax credits.

The tax credits are designed to sell to banks and investors. The investors get a break on their tax liability and housing authorities or developers get funding for their projects. Banks can use the low-income housing tax credits toward their Community Reinvestment Act obligations, under which banks meet the credit needs of the communities they operate in.

But the Tax Cuts and Jobs Act chops the corporate tax rate down from 35 percent to 21 percent, making that incentive a lot less attractive or even unnecessary.

“How much they’re willing to pay for those tax credits is currently unknown,” Neely said. “There’s a lot of uncertainty in the tax credit market.”

Even if the valuation of the credit drops 10 percent, Neely said, now something that used to be worth $1 is only worth $0.90. In broader terms, a developer counting on $10,000 in equity from tax credits might only have $9,000 to use. Those fewer dollars result in smaller budgets, which could mean cheaper development, perpetuating a cycle of insufficient investment in low-income housing properties. Developers could also seek other money to close up gaps in funding, but much of the state and local money available dried up in the great recession, said Mike Pitchford, president and CEO of the Community Preservation and Development Corporation.

Investors still interested in the credits will likely be more careful when choosing who to finance.

“One consequence that could hit a new entry like HACA … is buyers — there’s going to be less of them and they’re going to be much more picky with where they invest,” said Trudy McFall, co-founder and Chairman of Homes for America, one of the country’s largest non-profit affordable housing developers. “

Organizations like mine are going to have an easier time of it that those making their first entry. It’s a terrible time to be making your first entry.”

The housing authority’s past financial struggles make their chances even slimmer.

“We’re a high-risk business partner — we’ve had bad financials for a decade,” said John Dillon, a HACA board member. “It’s a high-risk environment with only so much capital and capital is being controlled more tightly.”

Dillon said even before the tax bill passage, a speedy timeline for redevelopment was unlikely. Now, the process could take years, he said.

McFall and Neely worry federal spending on public housing and section 8 programs will be slashed in the future to pay for the tax cuts. A smaller HUD budget could affect HACA’s day-to-day operations.

“How do we continue to run the properties we do have? How do we continue paying landlords for their section 8 tenants?” Neely said. “That’s my biggest concern.”

HACA is looking to redevelop Newtowne 20 using the 9 percent tax credit, which covers 70 percent of project costs without any additional subsidies. The Morris H. Blum redevelopment will use the 4 percent tax credit. The 4 percent tax credit is a 30 percent subsidy that can only be claimed if the development project uses private activity bonds. These funding mechanisms were initially on the chopping block in earlier drafts of the house and senate tax plans.

The housing authority has applied for RAD and is now waiting for their “commitment to enter into a housing assistance payment” or CHAP. The CHAP is a procedural step, and HACA is operating as if it already has it, Neely said.

HACA has a request for quotation out for a master developer for the Newtowne 20 project. There are five responses thus far, and HACA will choose one this coming January, Neely said.

HUD representatives did not return a request for comment.

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Jackson Dean Nicholson sang the National Anthem at the Arundel High School game Friday in Gambrills. Thousands of people have seen the video a fan posted on Facebook, and country music stations across the country reposted and commented on it.

Jackson Dean Nicholson sang the National Anthem at the Arundel High School game Friday in Gambrills. Thousands of people have seen the video a fan posted on Facebook, and country music stations across the country reposted and commented on it.

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Jackson Dean Nicholson sang the National Anthem at the Arundel High School game Friday in Gambrills. Thousands of people have seen the video a fan posted on Facebook, and country music stations across the country reposted and commented on it.

Jackson Dean Nicholson sang the National Anthem at the Arundel High School game Friday in Gambrills. Thousands of people have seen the video a fan posted on Facebook, and country music stations across the country reposted and commented on it.

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Midshipman Megan Viohl, from Sevena Park, discusses her assignment as a surface warfare officer after she graduates the Naval Academy.

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Larry Lee Thomas, Apostle/Bishop & Senior Pastor at Empowering Believers Church of The Apostolic Faith, speaks about recent acts of racism and how he hopes the community will come together to stop it. He spoke before The United Black Clergy of Anne Arundel County meeting Friday evening at the Mount Zion – Magothy United Methodist Church regarding continuing racist incidents at Chesapeake High School.

Larry Lee Thomas, Apostle/Bishop & Senior Pastor at Empowering Believers Church of The Apostolic Faith, speaks about recent acts of racism and how he hopes the community will come together to stop it. He spoke before The United Black Clergy of Anne Arundel County meeting Friday evening at the Mount Zion – Magothy United Methodist Church regarding continuing racist incidents at Chesapeake High School.